u2: economic indicators and the business cycle

GDP, unemployment, inflation

resource market

where resources (ie. land, labor, capital) are sold to businesses

product market

where goods/services produced by businesses are sold to consumers

what are the 4 parts of the business cycle

what does expansion represent (business cycle)

speedup in pace of econ activity, def by high growth, low unemployment, incr prices

what does the peak represent (business cycle)

upper turning of business cycle, where expansion → contraction

what does contraction represent (business cycle)

slowdown in pace of econ activity, def by low/stagnant growth, high unemployment, decr prices

what does the trough represent (business cycle)

lowest turning point of business cycle, where contraction → expansion

when does recession occur

• occurs if contraction is severe enough

• rep by a long lasting trough

• lasts sev months, vis in real GDP, real income, unemployment,industrial prod

what are the 3 econ goals?

1. promote econ growth

2. limit unemployment

3. limit inflation

what is GDP?

gross domestic product: dollar value of all final goods/services prod w/t a country’s borders in 1 yr

what is GDP per capita?

(GDP/pop) identifies on avg how many prod on avg each person makes

what does GDP per capita measure

best measure of standard of living

what is not included in GDP?

1. intermediate goods

2. nonproduction transactions

3. non-market illegal activities

what are the four parts of GDP? (expenditures approach)

1. consumer spending

2. investtments

3. govt spending

4. net exports 

C+I+G+X

income approach

adds up all income earned from prod goods/services

1. labor income (labor)

2. rental income (land)

3. interest income (capital)

4. profit (entrepreneurship)

what are the downsides of GDP

1. counts both “bads” and “goods” (eg. when earthquake hits + req rebuilding → counts towards GDP)

2. doesn’t account for leisure time (eg. 2 countries have the same GDP, but in 1 ppl work 8hr/day while in other ppl work 12hr/

3. doesn’t count dist of goods (eg. rich ppl get 80% of goods)

what is unemployment?

workers actively looking for jobs but not working

who is in the labor force?

• above 16

• able + willing to work

• not institutionalized

• not military, full time school, retired

what are the 3 types of unemployment?

1. frictional

2. structural

3. cyclical

what is frictional unemployment?

temp unemployment/being b/t jobs

what is structural unemployment?

changes in labor force make some skills obsolete

what is cyclical unemployment?

causes by recession

how do we find the unemployment rate?

#of ppl unemployed / #of ppl in labor force

what is the natural rate of unemployment

frictional + structural

labor force participation rate

labor force/working age pop

what are 3 problems with tthe unemployment rate?

doesn’t acc for

1. discouraged workers

2. underemployed employees

3. race/age inequalities

what is inflation?

rising gen lvl of prices, reduces purchasing power of money

is rampant inflation good or bad?

bad b/c banks don’t lend, ppl don’t save → decr investments and GDP

what is deflation? is it good or bad?

decr in gen prices / neg inflation rate → bad b/c ppl hoard $$

what is disinflation?

prices incr at slower rates

who does inflation hurt?

• savers

• ppl w/ fixed incomes

• lenders who lend at fixed rates

who does inflation help

• borrowers

• businesses whr prices of prod incr faster than prices of res

what is a market basket?

coll of goods tracked over time to measure inflation

what is CPI

consumer price index: most commonly used measurement of inflation for consumers